Two factors often determine stock prices in the long run: earnings and interest rates. Investors can't control the latter, but they can focus on a company's earnings results every quarter.
We know earnings results are vital, but how a company performs compared to bottom line expectations can be even more important when it comes to stock prices, especially in the near-term. This means that investors might want to take advantage of these earnings surprises.
Hunting for 'earnings whispers' or companies poised to beat their quarterly earnings estimates is a somewhat common practice. But that doesn't make it easy. One way that has been proven to work is by using the Zacks Earnings ESP tool.
The Zacks Earnings ESP, Explained
The Zacks Earnings ESP, or Expected Surprise Prediction, aims to find earnings surprises by focusing on the most recent analyst revisions. The basic premise is that if an analyst reevaluates their earnings estimate ahead of an earnings release, it means they likely have new information that could possibly be more accurate.
With this in mind, the Expected Surprise Prediction compares the Most Accurate Estimate (being the most recent) against the overall Zacks Consensus Estimate. The percentage difference provides the ESP figure. The system also utilizes our core Zacks Rank to provide a stronger system for identifying stocks that might beat their next quarterly earnings estimate and possibly see the stock price climb.
In fact, when we combined a Zacks Rank #3 (Hold) or better and a positive Earnings ESP, stocks produced a positive surprise 70% of the time. Perhaps most importantly, using these parameters has helped produce 28.3% annual returns on average, according to our 10 year backtest.
Most stocks, about 60%, fall into the #3 (Hold) category, and they are expected to perform in-line with the broader market. Stocks with a #2 (Buy) and #1 (Strong Buy) rating, or the top 15% and top 5% of stocks, respectively, should outperform the market, with Strong Buy stocks outperforming more than any other rank.
Should You Consider RTX?
The last thing we will do today, now that we have a grasp on the ESP and how powerful of a tool it can be, is to quickly look at a qualifying stock. RTX (RTX) holds a #2 (Buy) at the moment and its Most Accurate Estimate comes in at $1.69 a share 13 days away from its upcoming earnings release on July 23, 2026.
By taking the percentage difference between the $1.69 Most Accurate Estimate and the $1.66 Zacks Consensus Estimate, RTX has an Earnings ESP of +2.02%. Investors should also know that RTX is one of a large group of stocks with positive ESPs. Make sure to utilize our Earnings ESP Filter to uncover the best stocks to buy or sell before they've reported.
RTX is part of a big group of Aerospace stocks that boast a positive ESP, and investors may want to take a look at General Dynamics (GD) as well.
Slated to report earnings on July 22, 2026, General Dynamics holds a #2 (Buy) ranking on the Zacks Rank, and its Most Accurate Estimate is $4.12 a share 12 days from its next quarterly update.
For General Dynamics, the percentage difference between its Most Accurate Estimate and its Zacks Consensus Estimate of $3.92 is +5.05%.
Because both stocks hold a positive Earnings ESP, RTX and GD could potentially post earnings beats in their next reports.
Find Stocks to Buy or Sell Before They're Reported
Use the Zacks Earnings ESP Filter to turn up stocks with the highest probability of positively, or negatively, surprising to buy or sell before they're reported for profitable earnings season trading. Check it out here >>
Should You Invest in RTX Corporation (RTX)?
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Zacks Investment Research has been committed to providing investors with tools and independent research since 1978. For more than a quarter century, the Zacks Rank stock-rating system has more than doubled the S&P 500 with an average gain of +24.08% per year. (These returns cover a period from January 1, 1988 through May 6, 2024.)
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RTX Corporation (RTX): Free Stock Analysis Report
General Dynamics Corporation (GD): Free Stock Analysis Report
This article originally published on Zacks Investment Research (zacks.com).